When to Sell a Dividend Stock

We may earn money or products from the companies mentioned in this post.

One of the hardest decisions a dividend investor must make is when to sell a stock. I ran into this problem not too long ago with a couple stocks in the Money Sprout Index.

After building this portfolio for the past 5 years, we finally had to pull the trigger and sell all our shares in two different companies. These companies had announced dividend cuts, which is usually an automatic trigger for most dividend investors to sell.

It is easy to have these rules in place for when to sell a stock, but I found it difficult to take action when the time came.

Investing Rules – When to Sell a Dividend Stock

Just like I have rules for selecting dividend stocks to buy, I have rules on when to dump a stock. These rules allow us to build a sustainable source of income through dividends by owning shares of top notch companies.

The rules for managing the Money Sprout Index are quite simple actually.

BUY – Only buy stocks that are found using an 8 step screening process.

HOLD – Don’t buy new shares of a stock that has frozen their dividend.

SELL – When a company cuts it’s dividend, then sell the stock.

For years I had no problem following the first two rules for buying and holding stocks. Over the course of 5+ years, my wife and I accumulated almost 30 stocks with a projected annual dividend income of over $1,800 by following these rules.

Then earlier this year, two of the companies we owned (BHP and COP) were forced to make dividend cuts. This should have triggered our SELL rule into action – Place a sell order for all our shares and reinvest the funds into a different dividend stock.

The problem that we ran into was that I had become attached to these companies that made the cuts – along with the other companies that we owned.

I also felt that if we could just hold out a couple months or even a year, things with these two companies would change. That very well could happen, but it is not guaranteed. It seemed like if we could just break even, then everything would work itself out.

After ignoring the fact for several months that we needed to cash out of our shares in these two companies, we decided to finally sell. In the end, there are better investment options out there that will earn us sustainable dividend income.

I also realized that the other 27 stocks in our portfolio more than made up for the stocks that cut their dividends. That is the point when I realized something – a diversified portfolio of blue chip dividend stocks can make up for a few bad apples if built properly.

Conclusion

Most successful dividend investors follow a set of criteria they use to select stocks. Without a good set of rules in place, uneducated investors would be throwing their money away chasing high yielding stocks.

As is the case with selecting stocks to buy, it is just as important to know when to sell a dividend stock. More importantly, taking action when it is time to dump a dividend stock will help weed out the weaker companies.

Looking back now, I am confident we made the right decision in selling. We moved our funds into shares of two different companies that should provide stable dividend income for many years to come.

Have you ever found it difficult to dump a stock after a dividend cut or for any other reason?